As natural gas prices soar councilors eye potential sale of gas utility

By Breyana Segura - Chief Staff Writer | August 28, 2024

“No number is off the table,”

As cities across Texas continue to see an increase in municipal natural gas rates, Pearsall councilors may soon be entertaining the sale of the city’s utility system.
Representatives from Clarence Capital Partners, a Florida-based investment company, met with city administration earlier this year to discuss the possible sale of a utility system that has placed financial stress on the city for years.
“Our main strategy is purchasing local gas distribution systems,” Cole Claiborn, representative from Clarence Capital Partners said during a Tuesday, August 13 meeting. “We wanted to approach the city to see if there is any interest and allow us to make an offer to buy the system.”
According to Claiborn, the offer would be to take over the utility system and invest per the regulations of the Texas Railroad Commission (RRC).
“What they are imposing is relatively intensive and capital expensive,” Caliborn said. “We need to determine if you are interested in entertaining a sale.”
Mayor Ben Briscoe acknowledged a prior meeting with Clarence Capital Partners, expressing his desire to maintain open communication with the company.
“We have talked about the gas system, it is certainly interesting to have someone interested and come down,” the mayor said. “I think we definitely want to keep the door open and keep communication open.”
However, Briscoe noted further talks regarding the sale of the utility system would be halted until after budget season.
According to Briscoe, a sale price of the system has not been discussed. However, the RRC does highly regulate the price of natural gas.
“No number is off the table,” Claiborn said regarding councilors’ queries into a price tag. “The way we evaluate these opportunities is working with the seller to come up with a fair price. We have to make a return on the investment. But the Texas Railroad Commission regulates what the investor is allowed to earn. Rates are regulated by city or Railroad Commission. It would not be in our control to purchase the system and come in and jack up rates.
“It is highly regulated. So, the price would be a function of what the rates are, what the expenses are, and how much capital improvements are needed.”
The next step, according to Claiborn, would be gathering detailed financials of just the gas utility system. Then the investment company would work with city administration to determine what infrastructure improvements need to be made.
In December, councilors discussed a possible rate increase of the utility system after West Texas Gas (WTG), the natural gas supplier for the city, imposed a 19 percent increase.
“The rate increase is coming from the provider,” City Manager Federico Reyes said during a meeting on Tuesday, December 19. “They are not asking; they provide the gas to the city.”
According to West Texas Gas (WTG) representative Dillon Hensel, the city will see a 19 percent increase, which takes the current rate of $1.53 per MMBtu to $1.83.
“This increase is due to the new contract WTG has with their suppliers,” Hensel said. “The rates were increased; therefore, there is a ripple effect.”
Records show that during the summer months, residents who utilize the gas utility consume roughly 3,000 bcf per month; during the winter months, average consumption is 6,000-6,500 bcf per month.